Insulet 4Q17 – Record sales of $131 million grow 26%, driven by both US and INTL; Medicare negotiations begin; Dash submitted to FDA, expected 2H18 limited launch – February 21, 2018

Insulet reported 4Q17 financial results today in a call led by CEO Patrick Sullivan, CFO Michael Levitz, and President Shacey Petrovic. It was another record quarter for sales, on the backdrop of four other major wins: securing a path to Medicare Part D coverage (early January), submitting the new Dash PDM to the FDA (early January), implementing a major plan to go direct in Europe starting on July 1, and breaking ground on the new highly automated US manufacturing plant (online in 2019). Highlights below!

Financial Highlights

1. Worldwide Sales Rise 26% YOY to Record $131 Million; US Omnipod Sales: $77 million, +21% YOY; INTL Omnipod sales: $36 million, +72% YOY

• Worldwide sales of $131 million grew 26% YOY in 3Q17, reaching a record high for the third straight quarter (exceeding 3Q17’s $122 million) and exceeding guidance by $6 million ($123-$126 million). Sales came on a tough comparison to 4Q16’s 23% YOY growth. Revenue rose 7% sequentially from the previous record in 3Q17. All three business lines contributed, though two-thirds of the guidance beat this quarter came from US Omnipod.
  
  • US Omnipod sales of $77 million grew 21% YOY and 9% sequentially in 4Q17, exceeding guidance ($71.5-$73.5 million). This was the third straight record quarter for the US business, quite a notable achievement given the YOY growth Tandem and Medtronic both saw in 4Q17 (+60% and +15%, respectively). US Omnipod provided 47% of Insulet’s Q4 growth, the highest point in the past two years.
  • International Omnipod sales of $36 million hit an all-time high for the seventh straight quarter, increasing 72% YOY, providing 53% of Insulet’s 4Q17 growth, and beating guidance by ~$2 million ($33-$34 million). The YOY comparison was on the easier side for Insulet’s OUS business (+35% in 4Q16). Sales rose 10% sequentially from the previous high in 3Q17. Omnipod momentum remains strong in France, which remains ~1/3 of international patients. (Management did note, however, that growth is starting to taper a bit in France following two years of “extraordinary” gains.) Overall, it is an excellent sign for Insulet that the international business continues to do well; clearly, the incentives in place as part of the mid-2018 Ypsomed expiration are working.
• Full-year 2017 sales totaled $464 million, rising 26% YOY and exceeding guidance by ~$6 million ($456-$459 million). US Omnipod revenue totaled $272 million in 2017, increasing 18% YOY; International Omnipod revenue totaled $120 million, rising an impressive 67% YOY; and Drug Delivery revenue of $72 million increased 11% YOY. International Omnipod drove 50% of Insulet’s 2017 sales growth, far outpacing its 26% share of total revenue. We expect to see much of the same in 2018, given the ~50% uptick in pricing from going direct in Europe. US Omnipod drove 43% of 2017 growth, with the remaining 7% from Drug Delivery.

2. 2018 Guidance: Sales of $560-$580 million, rising 21%-25% YOY; Expected 16%-19% growth in US Omnipod, 54%-62% in OUS Omnipod

Management provided full-year 2018 and 1Q18 guidance, shown below. Generally these are in line with the current trends – continued momentum in US Omnipod, continued strong growth in the international business (though lower in 2018, given the focus on continuity of care, with the transition to direct distribution), and a decline in Drug Delivery. The Dash PDM and Medicare/Medicaid expansion aren’t expected to drive meaningful revenue until 2019. Management remains “very confident” in the 2021 targets of $1 billion in revenue, 70% gross margin, and above-market profitability.

• 1Q18 sales are expected in the range of $119-$123 million, a 17%-21% YOY rise. This includes US Omnipod sales of $68.5-$70 million (+15%-17%), international Omnipod sales of $36.5-$38 million (+45%-51%), and drug delivery sales of $14-$15 million (a 14% decline)

3. Worldwide base of 140,000-145,000 active users, up ~33% in 2017 via US base (+17%) and OUS base (+60%); 20% patient growth expected in 2018

Insulet’s worldwide installed base stood at ~140,000-145,000 active users at the end of 2017, reflecting ~33% YOY growth from the end of 2016 (~105,000-110,000). This also exceeded guidance for “30%” growth in the base. The US base grew a better-than-expected 17% in 2017 to ~77,000-80,000 users (15% growth was expected), while the international base grew a robust 60% YOY to ~63,000-65,000 users (“nearly 60%” was expected). This means the current base is ~55% in the US and ~45% outside the US. Notably, ~13% of Insulet’s users have type 2 diabetes, the first time we’ve heard this number and a great sign for the U500/U200 Omnipods with Lilly.

• Insulet added roughly ~11,000 patients in the US in 2017, behind Tandem’s ~17,000 new pump shipments in 2017. Of course, not every new Tandem pump shipment is a new patient add – e.g., upgrades – but our sense from Tandem management is that most of these new pump shipments are indeed new patient adds. Notably, Tandem’s US base is nearly 70,000 users, almost caught up with Insulet’s ~77,000-80,000 US users.
• President Shacey Petrovic estimated that only “10%-15% max” of new patient starts in Q4 came from the Animas exit – the company continues to reiterate existing pumpers are not its target market. Indeed, 80% of Omnipod new patients come from MDI – this is even higher than it had been previously. All this said, we do see this changing as the intensively-managed market moves to the closed loop; we also see Animas users who want to continue to use Dexcom being attracted to Omnipod.
• For 2018, Insulet expects 20% growth in the worldwide installed base, which would take the global base to ~170,000 users. The team expects 15%-18% US patient base growth in 2018, driven by an increasing field sales footprint, raising awareness of Omnipod, and broader market access (e.g., Medicaid). That said, this is slightly lower growth than seen in 2017. More muted, lower-than-traditional 20%-25% base growth is expected in Europe, as Insulet is focused on continuity of care and a seamless transition for existing customers.
• Insulet President Shacey Petrovic estimates US pump penetration stands at ~30-35% in type 1 diabetes overall, with higher penetration in pediatrics. She estimated EU pump penetration at a lower ~20% - a reminder of how much more runway all the companies have in Europe though they also have much bigger reimbursement challenges.

Pipeline Highlights

1. Dash Filed with FDA in January, Expected Clearance in 2H18 followed by Limited Market Release

In line with JPM, the Bluetooth-enabled Dash PDM and pod were submitted to the FDA “earlier this year,” with clearance expected in 2H18 followed by a “limited market release.” The slide (below) shown at JPM offered a nice graphic of the PDM, display app (user’s phone), and view app (caregiver phone). We like the iOS widget (lock screen), which showed insulin on board prominently and right under Dexcom’s G5 widget. Unlike the G5 transmitter (which can talk to a receiver and the smartphone app), the Dash pod will only talk to one device at launch – the Dash PDM. If a user’s own smartphone is not nearby, the app will display the most recently received data from the Dash PDM. Since the Dash PDM is a locked down Android phone, it will have WiFi, which presumably allows passive data upload to the cloud (Glooko!) and unlocks over-the-air software updates. Both will help Insulet stay competitive with Tandem’s t:slim X2 and Medtronic’s next-gen Bluetooth-enabled pumps.

• Management also shared today that Dash will offer payers a dashboard to dig into real-world use of Omnipod – yet another reminder of how important connected devices are going to be for all the companies and how important value-based healthcare is becoming. Paired with Glooko, this could be quite a competitive advantage for Insulet.

2. Horizon Automated Glucose Control in third IDE study, “On track,” pre-pivotal this year if all goes well; presumably launch still in ~2020 timeframe

Insulet is in the third IDE trial (five-day hotel study) for the Horizon Automated Glucose Control system. Insulet is learning “a tremendous amount” in this current study in pediatrics down to age two years. Depending on the data, the company will either move to a pre-pivotal study later this year, or do another study before moving ahead. This will be determined in the next month or two. Still, it implies a 2018 pivotal trial is unlikely to happen, meaning a pivotal in 2019 and a launch with Dexcom G6 is indeed “probably 2020 timeframe” – this is in line with JPM remarks last month and on the later side of the 3Q17 plan for an “end of 2019” or “early 2020” launch.

• See our ATTD 2018 coverage here for the latest on Horizon’s 54-hour meal and exercise studies (75%-85% time in range) and early n=11 five-day hotel study results in adults (mean glucose of 150 mg/dl, ~74% time-in-range, ~2% time <70 mg/dl, ~25% time >180 mg/dl).

3. Lilly U500 Omnipod launch in 2019, U200 launch in 2020

The Lilly U500 and U200 Omnipods are “on track” with previous timing – a U500 launch in 2019, followed by a 2020 launch of the U200 Omnipod. We saw screenshots of the U500 user interface in November at DTM, which looked outstanding on Dash. The phase 3 study of the Lilly U500 Omnipod PDM in type 2 patients (VIVID; n=416, change in A1c at 26 weeks) has completed, and at AADE, Dr. Trang Ly hoped it would be presented at ADA 2018 in Orlando. The later U200 product will be the big one for increasing Insulet’s addressable market, though President Shacey Petrovic emphasized that U500 is one of Lilly’s fastest growing molecules - hearing that 13% of Insulet pumpers are already type 2 bodes well for the opportunities here.

-- by Adam Brown and Kelly Close